Extension Bulletin E2999 Revised April 2008
Costs and Returns in Michigan Christmas Tree Production, 2006
By Pascal Nzokou and Larry A. Leefers MSU Forestry Dept.
MICHIGAN STATE UNIVERSITY EXTENSION Extension Bulletin E2999 New, July 2007 Costs and Returns in MICHIGAN STATE Michigan Christmas Tree UNIVERSITY EXTENSION Production, 2006
By Pascal Nzokou and Larry A. Leefers, MSU Forestry Dept. Table of Contents Introduction ...... 1 Methods ...... 2 The Survey ...... 2 Survey Results ...... 3 Characterization of Christmas tree operations...... 3 Christmas tree species in Michigan...... 4 Basic data for Scotch pine, Douglas fir and Fraser fir ...... 5 Costs and Returns for Scotch Pine ...... 6 Costs and Returns for Douglas Fir ...... 8 Costs and Returns for Fraser Fir ...... 11 Cost Analysis ...... 13 Economic Analysis ...... 15 Conclusion ...... 17 References ...... 17
Introduction
Growing Christmas trees is of significant economic pine, Fraser fir, Douglas fir and blue spruce. Offering importance in the Great Lakes states, the Pacific many species has permitted Michigan producers to Northwest, the Northeast and North Carolina. Growers remain competitive in nearly all national markets in these regions supply about 90 percent of all trees sold (NASS, 2005). in the United States (Koelling et al., 1992). Among the Great Lakes states, Michigan is the largest producer, The Department of Forestry at Michigan State with annual harvests of approximately 4 million trees University has been actively involved in research and with an estimated value of more than $100 million. The extension in support of Christmas tree growers in industry makes a significant contribution to the Michigan for decades. Periodic study of costs and Michigan economy, providing more than 5,000 returns in Christmas tree production in Michigan have permanent jobs and employing about 35,000 seasonal been conducted by MSU Extension faculty and staff workers for planting, trimming and harvesting members since the late 1960s. The previous reports were operations (Koelling et al., 1992). In several counties, published in 1968, 1972, 1982, 1986 and 1997. Christmas tree production is among the leading Over the years, many changes have occurred in the agricultural activities (Jones et al., 1999). Individual Christmas tree industry. The past decades have seen a operations vary in size from a few acres to more than species shift from a market dominated by Scotch pine to 5,000. The combination of a favorable climate and true firs; Fraser fir, especially, has increased in diverse soils enables Michigan growers to produce popularity among customers. Gasoline prices have more several species (Jones et al., 1999). than doubled since 1997, and growers are now faced An estimated 800 Christmas tree growers in Michigan with higher fertilizer and pesticide costs, higher labor are working on approximately 130,000 acres of land. costs, and higher harvesting, shipping and marketing Major species planted are true firs (balsam fir, concolor costs. In addition, the popularity of choose-and-cut fir and Fraser fir), Scotch pine and Colorado blue operations has increased in recent years, especially spruce. Among these, the best selling trees are Scotch around cities and large population concentrations. Choose-and-cut operations are known to have slightly
1 different needs and costs than traditional wholesale was not enough response on any of the additional operations. species to allow it full inclusion in the final report. Selected results are presented for these other species. A For these reasons, it was necessary to conduct an logical innovation in the 2006 report is the breakdown updated assessment of costs and returns in Michigan of costs and returns into choose-and-cut and wholesale Christmas tree production. Past studies focused on the operations. This report presents averages across the three most popular species: Scotch pine, Fraser fir and industry and allows each grower individually to assess Douglas fir. The current study also targeted the same and compare his/her operation with industry averages. species, but growers were given the option of providing This will help to identify loopholes and areas where information on additional species. Several growers work needs to be done to reduce costs to improve the provided information on Colorado blue spruce, Canaan profitability of Christmas tree operations. fir, Korean fir, concolor fir and balsam fir, though there Methods The list of Christmas tree growers who are members of production, along with costs and returns for each the Michigan Christmas Tree Association (MCTA) was production step and species. obtained from the association. Additional growers and The survey was mailed to 419 growers in January 2006. those who are not members of the MCTA were A postcard reminder was sent out in March 2006 asking compiled using a list obtained from the USDA National growers to fill out and return the surveys if they had not Agricultural Statistics Service (NASS) database. The yet done so. Another mailing was done in April 2006, initial list comprised 561 growers, almost three times the and copies were also made available during the winter 180 growers used in the 1997 study, which focused on meeting of the MCTA in April 2006. From the 419 forms wholesale producers. After removing duplicates and mailed, 59 were returned as unknown address, out of those known to be retired or out of business, a final list business or retired. Seventy-four positive responses of 419 growers was established. were received, of which 42 were considered usable A questionnaire survey based on the format used in (Table 1). The number of responses for the current past surveys was prepared, incorporating information survey was very similar to that of the 1997 survey. A from the NASS rotational survey (NASS, 2005). The non-respondent analysis conducted by evaluating the survey was modified to take into account current trends geographical distribution, sizes and characteristics of in the industry. Several MSU faculty members and those who did not return the survey showed no MCTA board members provided feedback for noticeable differences between non-respondents and corrections and validation. We requested from growers respondents for the study. information relating to several aspects of Christmas tree
Table 1. Questionnaires mailed, responses received and usable responses by species.
Scotch pine Douglas fir Fraser fir 1997 2006 1997 2006 1997 2006 Questionnaires mailed 180 419 180 419 180 419 Total responses 76 74 78 74 73 74 Usable responses 36 42 35 42 21 42
The Survey The survey contained questions about the background control, disease control and management costs. Other of the tree farm and several cost components relating to questions concerned costs and pricing for tagging, its production. Background questions related to farm harvesting, transporting, cleaning (shaking) and baling, type, total acreage for each species, farm location and and sales prices of trees. Information on tree spacing, products sold. Questions relating to costs focused on type of planting stock, width of access lanes, number of land value, property tax, site preparation, planting costs rows between access lanes, survival rate of first-year and cost of replanting. Data were also collected on plantings, number of trees sold per acre and percent of irrigation, staking, basal pruning, cleanup, chemical trees marketed was also sought. Additional pages were weed control, fertilizing, mowing, shearing, insect provided for growers to include information about any
2 other tree species they wanted included in the study, in Otherwise, the annual land rental cost was computed addition to the target species of Douglas fir, Scotch pine using the value-to-rent ratio of 30 computed by dividing and Fraser fir. the average reported land value by the average reported rent value from Christmas tree growers. This value is Aspects of the survey recorded per tree or per 1,000 similar to the 2006 published value-to-rent for other trees were converted to per acre units on the basis of the commodities, estimated at 38 in the southern Lower reported average spacing for each farm and each Peninsula and 41 in the Upper and northern Lower species. The annual land rental was used as reported Peninsula for field crops (Wittenberg and Harsh, 2006). when information was provided by the grower. Survey Results Characterization of Christmas tree operations Of the 74 responses received, a majority reported that their operations are located in the northern Lower Peninsula. Of those growing Douglas fir, 73 percent were in the northern Lower Peninsula and 27 percent in the southern Lower Peninsula. There were no respondents from the Upper Peninsula for Douglas fir. Fraser fir growers were slightly more scattered, with 7 percent in the Upper Peninsula, 57 percent in the northern Lower Peninsula and 34 percent in the southern Lower Peninsula. Of those growing Scotch pine, 17 percent were in the Upper Peninsula, 56 percent were in the northern Lower Peninsula and 28 percent were in the southern Lower Peninsula. Growers were given several options to characterize their operations. Choices included the nature of the farm (wholesale, choose-and-cut or nursery) and MCTA membership, as well as other types of products sold by Fig 1. Wreaths and garlands display at a choose-and-cut the farm. Results compiled from this characterization farm in Michigan. are summarized in Table 2.
Table 2. Characteristics of Christmas tree operations that returned the survey.
Operation Proportion MCTA Landscape Sell other Potted member trees products trees Choose-and-cut 27.5% 73.0% 27.7% 54.5% 45.4% Choose-and-cut, nursery 2.5% 100.0% 100% 100% 100% Wholesale 32.5% 46.1% 69% 23% 23% Wholesale and landscape 25.0% 40.0% 100.0% 60% 20.0% Wholesale, choose-and-cut 7.5% 100.0% 66.6% 66.6% 33.3% Wholesale, choose-and-cut, landscape 5.0% 50.0% 100% 100% 100%
The results presented above show that 27.5 percent of The majority of respondents were MCTA members (68 the respondents had choose-and-cut operations, and 2.5 percent), most wholesale operations (84 percent) were percent had operations that combined choose-and-cut also involved in the landscape tree business, and most sales and nursery for seedling production. Of the choose-and-cut operations (75 percent) also offered respondents, 32.5 percent were wholesalers, and 25 other types of products such as wreaths and garlands. It percent combined wholesale of Christmas trees with is notable that a high number of respondents from each sales of landscape trees. A few growers (7.5 percent) had of the subcategories in Table 2 reported selling potted operations including both wholesale and choose-and- trees (23 to 100 percent of respondents, depending on cut elements, and 5 percent combined wholesale, the category). This result indicates that Michigan choose-and-cut and landscape trees.
3 area planted for each species was quite variable, depending on the size of the operation, ranging from 1 to 1,200 acres for Scotch pine, 0.5 to 900 acres for Douglas fir and Fraser fir, and 0.2 to 10 acres for Korean fir. To rank species used for Christmas tree production, we calculated an index dividing the average area for each species by the total number of growers who grew the species (Table 3). According to that index, Scotch pine is still the No. 1 Christmas tree species for the respondents of our survey, with an average area Fig 2. Michigan Christmas tree growers are developing of 53.2 acres/grower. Scotch pine is followed by the supply of potted trees. Douglas fir and Fraser fir, with 44 acres/grower and 43.5 acres/grower, respectively. Following are blue Christmas tree growers are aware of the opportunity to supply the developing market for potted live Christmas spruce with 23.7 acres/grower, and Black Hills trees. spruce and balsam fir, with 8 acres/grower and 7.4 acres/grower, respectively. At the bottom of our list For the economic analysis, all respondents from the are Canaan fir, Austrian pine and Korean fir. choose-and-cut and choose-and-cut and nursery subcategories were classified as choose-and-cut, and all The ranking described above represents straight the other four subcategories — wholesale, wholesale averages from the data collected and may be slightly and landscape, wholesale and choose-and-cut, and skewed by the fact that large growers still have very wholesale, choose-and-cut and nursery — were large areas under Scotch pine production compared classified as wholesale. with average-sized and smaller growers. Christmas tree species in Michigan Species reported as grown for Christmas tree production in Michigan are listed in Table 3. The total
Table 3. Average area per grower and ranking of Christmas tree species in Michigan.
Range of area Average area planted by species per grower Ranking (acres) (acres/grower) Scotch pine 1 - 1200 53.20 1 Douglas fir 0.5 - 900 44.00 2 Fraser fir 0.5 - 900 43.50 3 Blue spruce 1 - 250 23.70 4 Black Hills spruce 1 - 120 08.05 5 Balsam fir 0.5 - 63 07.43 6 White pine 0.1 - 100 06.82 7 Concolor fir 0.5 - 81 06.60 8 White spruce 0.1 - 100 02.56 9 Norway spruce 0.1 - 40 02.24 10 Canaan fir 0.1 - 20 01.85 11 Austrian pine 0.01 - 26 01.84 12 Korean fir 0.2 - 10 00.46 13
4 Basic data for Scotch pine, Douglas fir 1997 values except for Scotch pine in choose-and-cut and Fraser fir farms and Fraser fir in wholesale production, where they were similar. The average selling prices for Scotch Data collected were used to conduct the costs and pine increased from $9.40 per tree in 1997 to $14.13 and returns analysis for each of the three major Christmas $15 per tree for wholesale and choose-and-cut farms in tree species. For each table of the economic analysis, the 2006, corresponding to increases of 50 and 59 percent, 1997 value is included for comparison purposes, and the respectively. The per tree selling price of 7- to 9-foot 2006 data are divided into wholesale and choose-and- Douglas fir trees increased from $14 per tree to $23.91 cut whenever possible. and $34 (wholesale and choose-and-cut), corresponding Basic data for Scotch pine, Douglas fir and Fraser fir — to 70 and 142 percent increases, respectively. A similar including the production period, the average land trend was observed for Fraser fir, where the selling values per acre, the planting density, the average prices increased from $22.56 to $27.39 per tree for number of tree harvested per acre and average selling wholesale farms and to $47 per tree for choose-and-cut prices — are summarized in Table 4. The data reveal farms. that the average land values for all the species are much The average percentage of total trees harvested for each higher than those reported in 1997. The current values year of the rotation for Scotch pine, Douglas fir and were estimated at an average of $2,600 to $3,000 per Fraser fir is summarized in Table 5. Data were collected acre, depending on the species and type of operation, in for rotations of eight, nine and 10 years for Scotch pine 2006, compared with $991 to $1,825 in 1997. Results of and Fraser fir and 10, 11, 12 and 13 years for Douglas fir. the 2006 survey also showed extremely high land values The percentages harvested (Table 5) were used with the ($10,000 to $30,000 per acre) for a few Christmas tree total number of trees harvested for each species (Table 4) operations located in highly urbanized counties and as the basis for determining the costs and returns of around major cities. The reported average number of harvesting operation for each year of the rotation. trees harvested per acre in 2006 is generally higher than
Table 4. Basic data for Scotch pine, Douglas fir and Fraser fir Christmas tree plantations. Scotch pine Douglas fir Fraser fir 1997 survey 2006 survey 1997 survey 2006 survey 1997 survey 2006 survey WS CC WS CC WS CC Production period (years) 8 to 10 8 to 10 9 to 10 10 to 13 10 to 13 11 to 13 8 to 10 8 to 10 9 to 10 Average land value per acre 991 2,600 3,000 1,825 2,812 ND 923 2,777 2,883 Average number of trees planted per acre 1,222 1,210 1,210 1,222 1,210 1,210 1,222 1,320 1,320 Average number of trees sold per acre 810 854 807 808 963 847 1,056 1,052 1,171 Average selling price per 7- to 9-foot tree $9.40 $14.13 $15.00 $14.00 $23.91 $34.00 $22.56 $27.39 $47.00 WS= Wholesale CC = Choose-and-cut ND = No data.
Table 5. Percentage of total trees harvested for each year of the rotation age for Scotch pine, Douglas fir and Fraser fir. Species Rotation Percentage harvested in age Year 6 Year 7 Year 8 Year 9 Year 10 Year 11 Year 12 Year 13 Scotch pine 8 10 30 60 9 10 20 50 20 10 10 20 30 30 10 Douglas fir 10 010155025 11 01015402510 12 0101525251510 13 010151525151010 Fraser fir 8 10 30 60 9 0205030 10 020204020
5 Costs and Returns for Scotch Pine The costs and returns of producing Scotch pine are compared with $66.25 for wholesale farms, and land summarized in Tables 6a, 6b and 6c. Costs incurred are taxes reported to be $33 per acre for choose-and-cut reported on a per acre basis, and the value per tree farms and $26.22 per acre for wholesale farms. The obtained by dividing the total cost by the number of higher land-related expenses associated with choose- trees per acre. The cost values of the 1997 survey are and-cut operations are not surprising and can be provided, and results obtained for 2006 are presented explained by the fact that such operations are usually for wholesale and choose-and-cut whenever possible. located around urban areas, where the real estate The years in which the costs are incurred for each of the pressure and land value are higher than in rural areas. three rotation ages (8, 9 and 10 years) are also included. Another interesting trend is slightly lower costs for choose-and-cut farms of most operations involving Results compiled in Table 6a show that the per acre direct labor, such as site preparation, planting and costs of all these major operations have increased replanting. This is also a predictable trend because most drastically since 1997. A simple comparison between the choose-and-cut operations are much smaller than 2006 and 1997 per acre costs shows that the most wholesale operations and involve large labor significant changes occurred in the costs of site contributions (usually undervalued by the grower) by preparation (98 percent increase), replanting (147 the grower himself. percent increase), land taxes (67 percent increase), mowing (85 percent increase), staking (55 percent The shearing, cutting, cleaning and baling, and hauling increase), disease control (66 percent increase) and and loading costs for Scotch pine are summarized in cleanup after harvest (91 percent increase). Table 6b. In 1997, the shearing costs varied from 6 cents/tree for 3- to 4-year- old trees to 13 cents/tree for The comparison of wholesale and choose-and-cut costs 10-year-old trees. The 2006 survey indicates that show that land value is slightly higher for choose-and- shearing costs now vary from 14 cents/tree for small cut farms ($3,000 per acre) than for wholesale farms trees to 23 cents for 10-year-old trees. These represent ($2,600 per acre). The same trend was observed for land changes of 133 percent for smaller trees and 76 percent rental, evaluated at $85.71 per acre for choose-and-cut
Table 6a. Scotch pine Christmas tree management costs (other than those associated with shearing and harvesting, eight- to 10-year rotations). 1997 survey 2006 survey WS CC Average cost per year Average cost per year Average cost per year Rotation length or per treatment or per treatment or per treatment in years Cost item 8910 (Per acre) (Per tree) (Per acre) (Per tree) (Per acre) (Per tree) (Years in which cost is incurred) Land value $991.00 $0.81 $2,600.00 $2.15 $3,000.00 $2.48 Land rental $45.35 $0.04 $66.25 $0.05 $85.71 $0.07 1-8 1-9 1-10 Site preparation $53.85 $0.04 $107.00 $0.09 $100.00 $0.08 1 1 1 Planting stock (2-0) $215.04 $0.18 $282.50 $0.23 $300.00 $0.25 1 1 1 Planting $99.59 $0.08 $122.22 $0.10 $75.00 $0.06 1 1 1 Replanting $20.34 $0.16 $50.29 $0.37 $31.35 $0.19 2 2 2 Land taxes $15.69 $0.01 $26.22 $0.02 $33.00 $0.03 1-8 1-9 1-10 Overhead $147.69 $0.12 $125.00 $0.10 $175.00 $0.14 1-8 1-9 1-10 Mowing $20.91 $0.02 $38.67 $0.03 $44.81 $0.04 1-8 1-9 1-10 Chemical weed control $28.42 $0.02 $31.50 $0.03 ND ND 1-5 1-6 1-7 Fertilizer ND ND $6.25 $0.01 $27.78 $0.02 2-8 2-9 2-10 Basal pruning $141.28 $0.12 $211.60 $0.17 ND ND 3 3 3 Staking $95.19 $0.21 $147.40 $0.34 ND ND 3 3 3 Insect control $47.26 $0.04 $49.48 $0.04 ND ND 3-8 3-9 3-10 Disease control $40.54 $0.03 $67.38 $0.06 ND ND 4-8 4-9 4-10 Cleanup after harvest $65.72 $0.05 $125.56 $0.10 ND ND 8 9 10 WS = Wholesale CC = Choose-and-cut ND = No data.
6 Table 6b. Scotch pine Christmas tree management costs associated with shearing and harvesting, eight- to 10-year rotations.
Cost item and years in Average cost Rotation length in years and cost per acre which cost is incurred per tree 8 9 10 1997 survey 2006 survey 2006 survey 2006 survey 2006 survey WS CC WS CC WS CC WS CC Shearing 3rd and 4th years $0.06 $0.14 $0.14 $120 $113 $120 $113 $120 $113 5th and 6th years 0.10 0.15 0.15 $128 $121 $128 $121 $128 $121 7th year 0.12 0.18 0.18 $138 $131 $138 $131 $138 $131 8th year 0.13 0.22 0.22 $113 $107 $132 $124 $132 $124 9th year 0.12 0.22 0.22 $38 $36 $75 $71 10th year 0.13 0.23 0.23 $20 $19 Cutting 6th year 0.19 0.40 ND $34 ND $34 ND $34 ND 7th year 0.19 0.40 ND $102 ND $68 ND $68 ND 8th year 0.19 0.40 ND $205 ND $171 ND $102 ND 9th year 0.19 0.40 ND $68 ND $102 ND 10th year 0.19 0.40 ND $34 ND Cleaning and baling 6th year 0.63 0.73 0.5 62 43 62 43 62 43 7th year 0.63 0.73 0.5 187 128 125 85 125 85 8th year 0.63 0.73 0.5 374 256 312 214 187 128 9th year 0.63 0.73 0.5 125 85 187 128 10th year 0.63 0.73 0.5 62 43 Hauling and loading 6th year 0.79 0.86 ND 73 ND 73 ND 73 ND 7th year 0.79 0.86 ND 220 ND 147 ND 147 ND 8th year 0.79 0.86 ND 441 ND 367 ND 220 ND 9th year 0.79 0.86 ND 147 ND 220 ND 10th year 0.79 0.86 ND 73 ND WS = Wholesale CC = Choose-and-cut ND = No data.
for bigger trees. The reported shearing costs were The total value of tree sales, calculated by multiplying similar for wholesale and choose-and-cut operations. the average per tree value for wholesale and choose- The cutting cost increased from 19 cents/tree to 40 and-cut by the total number of trees harvested, is cents/tree (110 percent increase), the cleaning and summarized in Table 6c. baling costs increased from 63 cents/tree to 73 The data summarized in Table 6c show that the total cents/tree (16 percent increase), and the hauling cost number of trees harvested was similar to the 1997 changed from 79 cents/tree to 86 cents/tree (9 percent number (810 trees per acre) for wholesale but slightly increase). The total expense for each of the operations higher (854 trees per acres) for choose-and-cut discussed above during each year of the rotation was operations. The total revenue from sales increased from computed by multiplying the cost per tree by the $7,614 in 1997 to $11,445 for wholesale and $12,810 for residual number of trees available (inflation is not choose-and-cut operations in 2006. These values included). This was obtained by removing the previous correspond to 50.3 percent and 68.2 percent increases for year’s harvest from the total number of trees per acre, wholesale and choose-and-cut, respectively. taking into account the mortality after planting.
7 Table 6c. Average number of Scotch pine trees sold per acre for each production period and revenues received at $14.13 and $15 for wholesale and choose-and-cut.
Year of sale 8-year rotation 9-year rotation 10-year rotation 1997 2006 1997 2006 1997 2006 WS CC WS CC WS CC 6 152 81 85 93 81 85 74 81 85 $1,429 $1,145 $1,281 $874 $1,145 $1,281 $696 $1,145 $1,281 7 325 243 256 265 162 171 192 162 171 $3,055 $3,434 $3,843 $2,491 $2,289 $2,562 $1,805 $2,289 $2,562 8 333 486 512 234 405 427 233 243 256 $3,130 $6,867 $7,686 $2,200 $5,723 $6,405 $2,190 $3,434 $3,843 9 218 162 171 167 243 256 $2,049 $2,289 $2,562 $1,570 $3,434 $3,843 10 144 81 85 $1,354 $1,145 $1,281 Trees sold 810 810 854 810 810 854 810 810 854 Gross revenue $7,614 $11,445 $12,810 $7,614 $11,445 $12,810 $7,614 $11,445 $12,810 WS = Wholesale CC = Choose-and-cut ND = No data. Costs and Returns for Douglas Fir The costs and returns (before inflation) for producing the Douglas fir 2006 analysis can be directly compared Douglas fir in Michigan are computed and tabulated as with the 1997 survey. for Scotch pine and summarized in Tables 7a, 7b and 7c. The land value in wholesale production units for Information returned from choose-and-cut growers was Douglas fir is very similar to that of Scotch pine. The insufficient to provide meaningful averages for data average price for land rental to grow Douglas fir in the analysis and is, therefore, not included. Consequently
Table 7a. Douglas fir Christmas tree management costs other than those associated with shearing and harvesting, eight- to 13 year rotations. 1997 survey 2006 survey WS CC Average cost per year Average cost per year Average cost per year Rotation length in years or per treatment or per treatment or per treatment Cost item 10 11 12 13 (Per acre) (Per tree) (Per acre) (Per tree) (Per acre) (Per tree) (Years in which cost is incurred) Land value $1,825 $1.49 $2,812.5 $2.32 ND ND 1-10 1-11 1-12 1-13 Land rental $75.53 $0.06 $71.67 $0.06 ND ND 1-10 1-11 1-12 1-13 Site preparation $88.93 $0.07 $122.73 $0.10 ND ND 1 1 1 1 Planting stock (2-0) $366.53 $0.30 $612.69 $0.51 ND ND 1 1 1 1 Planting $158.86 $0.13 $139.64 $0.12 ND ND 1 1 1 1 Replanting $39.26 $0.30 $65.41 $0.42 ND ND 2 2 2 2 Land taxes $26.48 $0.02 $22.07 $0.02 ND ND 1-10 1-11 1-12 1-13 Overhead $143.65 $0.12 $187.50 $0.15 ND ND 1-10 1-11 1-12 1-13 Mowing $25.52 $0.02 $43.84 $0.04 ND ND 1-10 1-11 1-12 1-13 Chemical weed control $25.00 $0.02 $42.93 $0.04 ND ND 1-7 1-8 1-9 1-10 Fertilizer $35.68 $0.03 $50.23 $0.04 ND ND 3-10 3-11 3-12 3-13 Basal pruning $167.06 $0.14 $181.78 $0.15 ND ND 4 4 4 4 Insect control $20.04 $0.02 $32.38 $0.03 ND ND 4-10 4-11 4-12 4-13 Disease control $29.80 $0.02 $33.18 $0.03 ND ND 7-10 7-11 7-12 7-13 Cleanup after harvest $101.27 $0.08 $144.62 $0.12 ND ND 10 11 12 13 WS = Wholesale CC = Choose-and-cut ND = No data.
8 Table 7b. Douglas fir Christmas tree management costs associated with shearing and harvesting, 10- to 13- year rotations.
Cost item Average cost Rotation length in years and cost per acre and years in per tree which cost is incurred 10 11 12 13 1997 2006 2006 2006 2006 2006 survey survey survey survey survey survey WS CC WS CC WS CC WS CC WS CC Shearing 4th-6th years $0.14 $0.15 ND $144 ND $144 ND $144 ND $144 ND 7th year 0.14 0.18 ND $173 ND $173 ND $173 ND $173 ND 8th year 0.14 0.22 ND $191 ND $191 ND $191 ND $191 ND 9th year 0.21 0.22 ND $159 ND $159 ND $159 ND $159 ND 10th year 0.24 0.23 ND $55 ND $78 ND $111 ND $133 ND 11th year 0.21 0.25 ND $24 ND $60 ND $84 ND 12th year 0.23 0.26 ND $25 ND $50 ND 13th year 0.20 0.26 ND $25 ND Cutting 6th year 0.20 0.45 ND 0 ND 0 ND 0 ND 0 ND 7th year 0.20 0.45 ND 43 ND 43 ND 43 ND 43 ND 8th year 0.20 0.45 ND 65 ND 65 ND 65 ND 65 ND 9th year 0.20 0.45 ND 217 ND 173 ND 108 ND 65 ND 10th year 0.20 0.45 ND 108 ND 108 ND 108 ND 108 ND 11th year 0.20 0.45 ND 43 ND 65 ND 65 ND 12th year 0.20 0.45 ND 39 ND 43 ND 13th year 0.20 0.45 ND 43 ND Cleaning and baling 6th year 0.62 0.91 0.5 0 0 0 0 0 0 0 0 7th year 0.62 0.91 0.5 88 42 88 42 88 42 88 42 8th year 0.62 0.91 0.5 131 64 131 64 131 64 131 64 9th year 0.62 0.91 0.5 438 212 351 169 219 106 131 64 10th year 0.62 0.91 0.5 219 106 219 106 219 106 219 106 11th year 0.62 0.91 0.5 88 42 131 64 131 64 12th year 0.62 0.91 0.5 79 42 88 42 13th year 0.62 0.91 0.5 88 42 Hauling and loading 6th year 0.83 0.99 ND 0 ND 0 ND 0 ND 0 ND 7th year 0.83 0.99 ND 95 ND 95 ND 95 ND 95 ND 8th year 0.83 0.99 ND 143 ND 143 ND 143 ND 143 ND 9th year 0.83 0.99 ND 477 ND 381 ND 238 ND 143 ND 10th year 0.83 0.99 ND 238 ND 238 ND 238 ND 238 ND 11th year 0.83 0.99 ND 95 ND 143 ND 143 ND 12th year 0.83 0.99 ND 86 ND 95 ND 13th year 0.83 0.99 ND 95 ND WS = Wholesale CC = Choose-and-cut ND = No data.
2006 survey was similar to the reported value in 1997 Most production costs increased between 1997 and 2006, ($71.67 and $75.53, respectively) but higher than the with the largest change being in the cost of basal rental value for Scotch pine ($66.20 and $45.30 in 2006 pruning, which changed from $35.68/acre to and 1997, respectively). This observation clearly $181.78/acre (409 percent change). Mowing and suggests that growers expect to pay or attach higher chemical weed control costs increased by about 72 price value to premium sites used to grow Douglas fir. percent, and the purchase price for planting stock and
9 the cost for replanting increased 66 to 67 percent; the years of longer rotation ages because portions of the cost of insect control increased 61 percent, and the field were harvested in previous years and the total cleanup cost after harvest increased 43 percent. number of trees involved is diminished. Other production costs — shearing, cutting, cleaning The value of Douglas fir tree sales, calculated by and baling, and hauling and loading — are summarized multiplying the average sale price by the total number in Table 7b. The shearing cost reported in 1997 varied of trees harvested, is presented in Table 7c. from 14 cents/tree for 4- to 6-year-old trees to 20 The reported total number of trees sold per acre cents/tree for 13-year-old trees. In the current survey, increased from 808 trees per acre in 1997 to 963 and 847 the same cost is reported at 15 cents/tree to 26 trees per acre in 2006 for wholesale and choose-and-cut, cents/tree for similar sizes. The cutting cost more than respectively. The higher number of trees sold in 2006 doubled, increasing from 20 cents/tree to 45 cents/tree could be the result of better management practices in 2006 (125 percent increase). Cleaning and baling costs resulting in lower losses throughout the rotation and increased by 46 percent, going from 62 cents/tree to 91 better yields at harvest. The average selling price per cents/tree. The average price for hauling and loading tree increased from $14 in 1997 to $23.91 (wholesale) was 99 cemts/tree up from 83 cents/tree in the 1997 and $34 (choose-and-cut). This combination of a higher survey. number of trees harvested and higher selling prices All analyses on Douglas fir were conducted assuming increased the gross revenue per acre of Douglas fir from rotation ages of 10 to 13 years. The total cost per acre $11,312 in 1997 to $23,049 for wholesale and $28,798 for calculated and presented in Table 7b for each year of the choose-and-cut operations (Table 7c). These values rotation age takes into account the total number of trees represent a 103 percent increase for wholesale and 155 harvested during the previous years of operation. percent increase for choose-and-cut. Logically, the total cost per acre decreases in the later
Table 7c. Average number of trees sold per acre for each production period and revenues received at $23.91 and $34 for wholesale and choose-and-cut, respectively.
Year 10-year rotation 11-year rotation 12-year rotation 13-year rotation of sale 1997 2006 1997 2006 1997 2006 1997 2006 WS CC WS CC WS CC WS CC 67259 $1,008 $826 7 121 96 83 71 96 83 44 96 83 42 96 83 $1,694 $2,295 $2,822 $994 $2,295 $2,822 $616 $2,295 $2,822 $588 $2,295 $2,822 8 253 145 127 192 145 127 22 145 127 170 145 127 $3,542 $3,467 $4,318 $2,688 $3,467 $4,318 $308 $3,467 $4,318 $2,380 $3,467 $4,318 9 214 482 423 216 386 340 131 241 213 170 145 128 $2,996 $11,525 $14,382 $3,024 $9,229 $11,560 $1,834 $5,762 $7,242 $2,380 $3,467 $4,352 10 148 241 214 161 241 214 218 241 214 170 241 214 $2,072 $5,762 7276 $2,254 $5,762 $7,276 $3,052 $5,762 $7,276 $2,380 $5,762 $7,276 11 109 96 83 175 145 127 85 145 128 $1,526 $2,295 $2,822 $2,450 $3,467 $4,318 $1,190 $3,467 $4,352 12 218 96 83 43 96 84 $3,052 $2,295 $2,822 $602 $2,295 $2,856 13 128 96 83 $1,792 $2,295 $2,822 Trees sold 808 963 847 808 963 847 808 963 847 808 963 847 Gross revenue $11,312 $23,049 $28,798 $7,532 $23,049 $28,798 $8,260 $23,049 $28,798 $8,918 $23,049 $28,798 WS = Wholesale CC = Choose-and-cut.
10 Costs and Returns for Fraser Fir The average costs and returns for producing Fraser fir survey returns listed in Table 8a had increased are summarized in Tables 8a, 8b and 8c. The average significantly since 1997. The highest increases are land value for Fraser fir is very similar to values recorded for disease control ($23.14 in 2006 compared reported for Scotch pine and Douglas fir, but the with $2.38 in 1997), basal pruning ($206.42 in 2006 average land rental value is $78/acre compared with the compared with $30 in 1997), mowing ($50.03 in 2006 $52.20/acre reported in the 1997 survey, and higher compared with $15.20 in 1997) and replanting ($107.47 than the two values reported for both Douglas fir in 2006 compared with $42.48 in 1997). Other cost items ($71.67/acre) and Scotch pine ($66.25/acre). The change showing substantial increases include the cost for insect in rental value corresponds to a 49 percent increase in control, which went from $19.58 in 1997 to $37.05 in rental charges to growers since 1997. In addition, the 2006 (89 percent increase), and the cost of site data indicate that growers are willing to pay almost preparation, which increased from $94.38/acre in 1997 $7/acre/year more to rent premium farmland where to $153.75/acre in 2006. For choose-and-cut operations, they can grow Fraser fir than to rent land to grow similar to the trend observed for Scotch pine, costs of Douglas fir. The same comparison between Fraser fir associated activities involving hand labor, such as site and Scotch pine shows that growers will pay almost preparation and replanting, are lower than for $12/acre/year more for Fraser fir farmland than for wholesale. A new cost item that appears in the 2006 Scotch pine land. survey is the irrigation cost for Fraser fir. Wholesale In addition, as with Scotch pine and Douglas fir, most of farms reported spending an average of $115/acre/year the other production costs for Fraser fir in wholesale for irrigation; choose-and-cut farms reported annual irrigation cost at $120/acre.
Table 8a. Fraser fir Christmas tree management costs (other than those associated with shearing and harvesting), eight- to 10-year rotations. 1997 survey 2006 survey WS CC Average cost Average cost Average cost Rotation length per year per year per year in years or per treatment or per treatment or per treatment Cost item 8910
(Per acre) (Per tree) (Per acre) (Per tree) (Per acre) (Per tree) (Years in which cost is incurred) Land value $923.00 $0.75 $2,777.78 $2.30 $2,883.00 $2.38 1-8 1-9 1-10 Land rental $52.22 $0.04 $78.00 $0.06 N/A N/A 1-8 1-9 1-10 Site preparation $94.38 $0.08 $153.75 $0.13 $76.00 $0.06 1 1 1 Planting stock (2-0) $586.56 $0.48 $748.67 $0.62 $927.00 $0.77 1 1 1 Planting $202.11 $0.17 $192.73 $0.16 $205.00 $0.17 1 1 1 Replanting $42.48 $0.29 $107.47 $0.51 $67.00 $0.27 2 2 2 Land taxes $18.98 $0.02 $25.33 $0.02 $43.00 $0.04 1-8 1-9 1-10 Overhead $122.29 $0.10 $240.00 $0.18 $295.00 $0.22 1-8 1-9 1-10 Mowing $15.22 $0.01 $50.03 $0.04 $72.36 $0.06 1-8 1-9 1-10 Chemical weed control $27.72 $0.02 $39.92 $0.03 $54.58 $0.05 1-5 1-6 1-7 Fertilizer $30.00 $0.02 $36.10 $0.03 $36.10 $0.03 1-8 1-9 1-10 Basal pruning $30.00 $0.02 $206.42 $0.17 $100.00 $0.08 3 3 3 Irrigation N/A N/A $115.00 $0.10 $120.00 $0.10 3 3 3 Insect control $19.58 $0.02 $37.05 $0.03 60.00 ND 3-8 3-9 3-10 Disease control $2.38 $0.00 $23.14 $0.02 ND ND 4-8 4-9 4-10 Cleanup after harvest $84.17 $0.07 $123.85 $0.10 $103.00 $0.09 8 9 10 WS = Wholesale CC = Choose-and-cut ND = No data.
11 Table 8b. Fraser fir Christmas tree management costs associated with shearing and harvesting, eight- to 10-year rotations. Cost item and years Rotation length in years and cost per acre in which cost is Average cost incurred per tree 8 9 10 1997 2006 2006 2006 2006 survey survey survey survey survey WS CC WS CC WS CC WS CC Shearing 3rd and 4th years $0.05 $0.13 $0.22 $137 $258 $137 $258 $137 $258 5th and 6th years 0.08 0.16 0.26 $168 $304 $168 $304 $168 $304 7th year 0.11 0.18 0.28 $170 $295 $170 $295 $170 $295 8th year 0.13 0.20 0.32 $126 $225 $147 $262 $168 $300 9th year 0.15 0.21 0.37 $66 $130 $144 $282 10th year 0.17 0.21 0.37 $55 $108 Cutting 6th year 0.20 0.41 ND 43 43 43 7th year 0.20 0.41 ND 129 86 43 8th year 0.20 0.41 ND 259 216 65 9th year 0.20 0.41 ND 86 173 10th year 0.20 0.41 ND 108 Cleaning and baling 6th year 0.58 0.61 0.5 64 59 64 59 64 59 7th year 0.58 0.61 0.5 193 176 128 117 64 59 8th year 0.58 0.61 0.5 385 351 321 293 96 88 9th year 0.58 0.61 0.5 128 117 257 234 10th year 0.58 0.61 0.5 160 146 Hauling and loading 6th year 0.83 0.96 ND 101 ND 101 ND 112 ND 7th year 0.83 0.96 ND 303 ND 202 ND 112 ND 8th year 0.83 0.96 ND 606 ND 505 ND 169 ND 9th year 0.83 0.96 ND 202 ND 450 ND 10th year 0.83 0.96 ND 281 ND WS = Wholesale CC = Choose-and-cut ND = No data.
The various cost items associated with shearing and The total number of trees harvested for wholesale harvesting operations are summarized in Table 8b. operations in the 2006 survey was similar to that reported in the 1997 survey (1,056 and 1,052, The average shearing cost for Fraser fir trees in 1997 respectively). The reported average number of trees varied from 5 cents to 17 cents/tree. Shearing costs are harvested was slightly higher for choose-and-cut farms. currently reported at 13 cents to 21 cents/tree for The change in selling price per tree for wholesale farms wholesale and 22 cents to 37 cents/tree for choose-and- is relatively small, going from $22.56 in 1997 to $27.39 in cut operations. The cutting cost increased from 20 2006. On the other hand, the average selling price per cents/tree in 1997 to 41 cents/ tree in the current survey tree for choose-and-cut operations ($47/per tree) is for wholesale. Cleaning and baling costs increased from more than double the reported number in 1997 58 cents to 61 cents/tree, and hauling and loading costs ($22.56/tree). Consequently, the gross sales revenue for increased from 83 cents to 96 cents/tree. The calculated Fraser fir increased from $23,823 to $28,814 (21 percent cost per acre for each year of the rotation is presented in increase) for wholesale and to $55,037 per acre for Table 8b. choose-and-cut operations. The average numbers of trees harvested and total returns for Fraser fir production are presented in Table 8c.
12 Table 8c. Average number of Fraser fir trees sold per acre for each production period and revenues received at $27.39 and $47 for wholesale and choose-and-cut. Year of sale 8-year rotation 9-year rotation 10-year rotation 1997 2006 1997 2006 1997 2006 WS CC CC WS CC WS CC 6 141 105 117 $3,181 $2,876 $5,499 7 563 316 351 260 210 234 68 210 234 $12,701 $8,655 $16,497 $5,866 $5,752 $10,998$1,534 $5,752 $10,998 8 352 631 703 422 526 586 329 210 234 $7,941 $17,283 $33,041 $9,520 $14,407 $27,542$7,422 $5,752 $10,998 9 374 316 351 363 422 469 $8,437 $8,655 $16,497$8,189 $11,559 $22,043 10 296 210 234 $6,678 $5,752 $10,998 Trees sold 1,056 1,052 1,171 1,056 1,052 1,171 1,056 1,052 1,171 Gross revenue $23,823 $28,814 $55,037 $23,823 $28,814 $55,037 $23,823 $28,814 $55,037 WS= Wholesale CC = Choose-and-cut ND = No data.
Cost Analysis The percentages of the total cost for each of the major loading the trees represent a lower percentage of the farming activities for Scotch pine, Douglas fir and Fraser total costs at choose-and-cut farms than at wholesale fir are summarized in Tables 9a, 9b and 9c. operations. For wholesale production of Scotch pine (Table 9a), the The cost structure for Douglas fir in wholesale major expense pools are shearing cost, representing 16 production (Table 9b) is very similar to that of Scotch to 17 percent; harvesting and postharvest handling pine. Major expenses are incurred for shearing (15 to 16 operations (16 to 19 percent) and overhead expenses, percent), harvesting (20 to 24 percent), overhead (20 to estimated at 15 to 16 percent of the total cost. Land 22 percent) and weed control (8 to 9 percent). In rental (8 to 9 percent), insect and disease control (10 to addition, the costs of planting material (5 to 6 percent) 12 percent) and mowing and chemical weed control and fertilizers (8 percent) appear as major expenses for (7 to 9 percent) are also major cost expenses for Douglas fir production. wholesale operations. The overall structure of the The cost items for Fraser fir appear to be distributed in a production costs for Scotch pine choose-and-cut similar manner as in Scotch pine and Douglas fir. The operations is very similar to that of wholesale farms. major difference is the addition of irrigation costs, Notable differences are land rental costs, which are representing about 10 percent of the total production 3 percent higher for choose-and-cut, and overhead costs, cost in both wholesale and choose-and-cut operations. which are also 5 to 6 percent higher for choose-and-cut As with Douglas fir, the cost of planting material is also because of the inclusion of charges incurred for non- a major expense in Fraser fir production. Finally, costs production amenities offered at choose-and-cut farms. related to harvesting and handling operations are also Another important difference is the much lower cost for 10 to 15 percent lower for choose-and-cut farms than for harvesting and handling at choose-and-cut farms. This wholesale operations. is expected because customers usually cut their own trees at choose-and-cut as part of the overall “Christmas tree family tradition” experience. The costs for cleaning and baling and the help provided to customers for
13 Table 9a. Percentage of the total production cost of farming activities for Scotch pine. Wholesale Choose-and-cut 8 years 9 years 10 years 8 years 9 years 10 years Site preparation 1.7 1.5 1.4 1.5 1.4 1.3 Stock 2-0 4.4 4.0 3.7 4.6 4.3 4.0 Planting 1.9 1.7 1.6 1.2 1.1 1.0 Replanting (with stock) 0.8 0.7 0.7 0.5 0.4 0.4 Chemical weed control 2.4 2.7 2.9 2.4 2.7 2.9 Mowing 4.8 5.0 5.1 5.6 5.8 6.0 Insect control 4.6 5.0 5.3 4.6 5.0 5.3 Disease control 5.2 5.8 6.3 5.2 5.8 6.3 Fertilizing 0.8 0.7 0.7 0.8 0.7 0.7 Property taxes 3.3 3.4 3.5 4.1 4.3 4.4 Land rental 8.2 8.5 8.8 10.6 11.0 11.4 Overhead 15.5 16.1 16.6 21.7 22.5 23.3 Cleanup after final harvest 1.9 1.8 1.7 1.9 1.8 1.7 Shearing 16.1 16.7 17.3 16.1 16.6 17.0 Staking 1.8 1.7 1.6 1.8 1.7 1.6 Basal pruning 3.0 2.8 2.6 3.0 2.8 2.6 Tinting 4.4 4.1 3.8 4.6 4.3 4.0 Cutting, cleaning, 19.2 17.7 16.5 6.6 6.1 5.7 baling, hauling and loading
Table 9b. Percentage of the total production cost of farming activities for Douglas fir (wholesale operations). 10 years 11 years 12 years 13 years Site preparation 1.3 1.2 1.2 1.1 Stock 2-0 6.5 6.1 5.8 5.5 Planting 1.5 1.4 1.3 1.2 Replanting (with stock) 0.7 0.7 0.6 0.6 Chemical weed control 3.2 3.4 3.6 3.8 Mowing 4.7 4.8 5.0 5.1 Insect control 2.4 2.6 2.7 2.9 Disease control 1.4 1.7 1.9 2.1 Fertilizing 5.7 5.9 6.0 6.2 Property taxes 2.3 2.4 2.5 2.6 Land rental 7.6 7.9 8.1 8.3 Overhead 20.0 20.7 21.2 21.7 Cleanup after final harvest 1.5 1.5 1.4 1.3 Shearing 15.2 15.2 15.7 16.1 Basal pruning 1.8 1.7 1.6 1.5 Cutting, cleaning, 24.1 22.7 21.4 20.2 baling, hauling and loading
14 Table 9c. Percentage of the total production cost of farming activities for Fraser fir. Wholesale Choose-and-cut 8 years 9 years 10 years 8 years 9 years 10 years Site preparation 1.6 1.5 1.4 0.8 0.7 0.7 Stock 2-0 7.8 7.2 7.0 9.6 8.9 8.7 Planting 2.0 1.8 1.8 2.1 2.0 1.9 Replanting (with stock) 1.1 1.0 1.0 0.7 0.6 0.6 Chemical weed control 2.1 2.3 2.6 2.8 3.1 3.6 Mowing 4.2 4.3 4.7 6.0 6.2 6.8 Insect control 2.3 2.5 2.8 3.7 4.0 4.5 Disease control 1.2 1.3 1.5 1.2 1.3 1.5 Fertilizing 3.0 3.3 3.8 3.0 3.3 3.8 Property taxes 2.1 2.2 2.4 3.6 3.7 4.0 Land rental 6.5 6.7 7.3 6.5 6.7 7.3 Overhead 20.0 20.7 22.5 24.5 25.4 27.7 Cleanup after final harvest 1.3 1.2 1.2 1.1 1.0 1.0 Shearing 11.4 12.2 12.5 18.4 19.5 21.5 Staking Basal pruning 2.2 2.0 2.0 2.2 2.0 2.0 Irrigation 9.6 9.9 9.7 10.0 10.3 10.1 Cutting, cleaning, baling, 21.7 19.9 15.6 6.1 5.6 4.4 hauling and loading
Economic Analysis Because of the long time between planting and (NPV), the annual equivalent value (AEV) and the harvesting, Christmas tree farming is different from internal rate of return (IRR). The IRR can be defined as producing most other agricultural crops. Throughout the rate at which discounted revenues equal discounted the rotation, factors such as inflation and interest rates costs. An investment has good potential if the IRR vary and affect the profitability of the operation. For exceeds rates from alternative investments with similar example, inflation may result in future returns that risk, timing and capital outlay. The IRR is based on the appear large in today’s dollars but have low future cash flow recorded for each year of the rotation. The purchasing power. Also, because interest rates are IRRs determined in this study are real rates earned closely related to inflation, interest cost incurred or above the estimated inflation rate. In this study, as in interest income foregone will vary with inflation rates. the previous report, the inflation rate was assumed to This is an important concern when considering affect returns and costs at the same rate. Finally, because investments that do not generate returns for many of great variation in tax situations, the IRR was years. calculated before taxes and is reported as such. Christmas tree growers do not receive any income until The IRR is also known as return on investment (ROI) harvesting operations begin at the end of the rotation. and can be used as an analytical tool to compare one’s Consequently, simply comparing total revenues to total investment to alternative use of one’s capital. An costs does not provide a proper evaluation of the example could be the interest rate generated by a investment because of the time value of money (Jones et certificate of deposit or potential interest gains from al., 1999). To determine the profitability of Christmas capital investments. The IRR can be expressed as tree production, returns must be discounted because a current — that is, including inflation — or as real — dollar to be received tomorrow is not worth the same as with inflation removed (Jones et al., 1999). The rates of a dollar received today. Several economic measures can return as usually published by banks are current. For be used in such cases, including the net present value example, if a bank reports a 7 percent per year earning
15 on a CD, it usually refers to the current rate. If during radar, with cost increases relatively small while tree sale that time the inflation rate is 3 percent, the actual rate of prices increased significantly ($23.91/tree in 2006 return will be 4 percent per year. Actual rates of return compared with $11.91/tree in 1997). of 4 to 6 percent are often viewed as acceptable for safe Scotch pine production in both wholesale and choose- investments. and-cut operations also came up with strong IRRs, The IRR values for Scotch pine, Douglas fir and Fraser yielding well over 20 percent in both cases. The IRR for fir production are reported in Table 10. As expected, Scotch pine in 1997 ranged from 9 to 16 percent, and this Fraser fir production generates the highest IRR, was a more than 50 percent drop from 1986 values (25 to followed by Douglas fir and Scotch pine. In addition, 35 percent). Results of the 2006 survey indicate an choose-and-cut operations have higher IRRs than increase of 5 to 11 percent in the IRR for Scotch pine. As wholesale operations. most growers rush toward premium species such as Fraser fir, where most fertile sites and resources are Fraser fir production in wholesale operations yields a 28 used, Scotch pine is planted in marginal sites where, to 35 percent IRR, slightly lower than the reported value because of its adaptability to local conditions, it is still of 33 to 48 percent in 1997. This decrease in IRR since able to grow and perform well. In addition, because the 1997 is probably due to the overall increases in total number of Scotch pine trees supplied to the market production costs, which, when combined, produce a has declined, the sales prices for Scotch pine have much larger impact on the production system than remained steady and even increased since 1997. The changes in prices of tree sales. The IRR for choose-and- combination of strong tree sale prices ($14.13/tree for cut operations is 36 to 51 percent, generally 7 to 16 wholesale, and $15 for choose-and-cut, compared with percent higher than that of wholesale operations. The $9.40 in 1997) and low production costs explain the generally high IRR of Fraser fir production can be good IRR obtained for Scotch pine. explained by the higher selling price of Fraser fir Christmas trees ($27 for wholesale and $47 for choose- As stated earlier, these numbers represent industry and-cut). averages, and each Christmas tree grower can compare his/her situation — costs, revenues and yields — to Douglas fir in wholesale operations currently yields better understand the operation’s individual about a 24 to 25 percent IRR, compared with 8 to 16 performance. A computer spreadsheet was used to percent in 1997. The current yield for Douglas fir calculate the IRR; growers interested in assessing their production is 8 to 15 percent better than in 1997. The individual situations should contact the authors for a good return of Douglas fir production can be explained copy of the spreadsheet. by the fact that, with increasing focus and movement toward Fraser fir, this species has remained below the
Table 10. Internal rate of return earned by three species of Christmas trees. IRR earned (percent before tax) Rotation (years) Scotch pine Douglas fir Fraser fir 1997 2006 1997 2006 1997 2006 WS CC WS CC WS CC 8 16 21.6 24.3 48 34.5 50.9 9 12 21.2 23.6 39 30.3 41.9 10 9 21.0 23.0 16 25.7 ND 33 28.3 35.6 11 13 25.6 ND 12 7 24.6 ND 13 8 23.8 ND WS = Wholesale CC = Choose-and-cut ND = No data.
16 Conclusion Results presented show that, for the growers who acceptable level of return, at least as good as the safest participated in the study, Scotch pine is still the No. 1 alternative investment. Results obtained in this study Christmas tree species in Michigan in total acreage per showed that, despite the sharp increase in production grower, followed by Fraser fir and Douglas fir. costs, the industry is able to garner tree prices high Colorado blue spruce, Black Hills spruce, balsam fir, enough to generate a substantial profit. Results also white pine and concolor fir are also major Christmas showed that Fraser fir is the most profitable Christmas tree species planted in Michigan. tree species, with the highest level of return, but it is also profitable to grow Douglas fir and Scotch pine. Production costs for Scotch pine, Douglas fir and Fraser fir have increased significantly since 1997, and major In addition, the survey also demonstrated that choose- cost expenses continue to be shearing, weed control and and-cut operations generate 4 to 15 percent higher costs related to harvesting operations — cutting, returns than wholesale operations for Fraser fir, and 2 to cleaning, baling and loading. The costs of planting stock 3 percent higher returns for Scotch pine. The higher rate and fertilization are also major expenses for Douglas fir of return for choose -and-cut operations, due mainly to and Fraser fir production. In addition, irrigation appears higher per tree selling prices, explains the rise of this as a major expense for Fraser fir production. type of operation in the Christmas tree industry. Christmas tree growers are investors who expect their efforts to sustain their livelihood and to generate an References Cassens, D., and V. Cassens. 2006. A Choose-and-Cut National Agricultural Statistics Service (NASS). 2005. Pine and Fir Christmas Tree Case Study. Forest and Christmas Trees: Nursery and Christmas Tree Natural Resources Report FNR-244. West Lafayette, Rotational Survey, 2004-2005. Lansing, Mich.: Michigan Ind.: Purdue University Cooperative Extension Service. Department of Agriculture. Jones, D.M., L.A. Leefers and M.R. Koelling. 1999. Costs Wittenberg, E., and S. Harsh. 2006. 2005 Michigan Land and Returns in Michigan Christmas Tree Production. Value and Leasing Rates. Agricultural Economics MAES Research Report 565. East Lansing, Mich.: Report No. 625. East Lansing, Mich.: Michigan State Michigan State University. University. Koelling, M.R., J.B. Hart and L.A. Leefers. 1992. Status and Potential of Michigan Agriculture Phase II. Photo credit Christmas Tree Production. MAES Special Report 61. East Lansing, Mich.: Michigan State University. All photos were taken by Pascal Nzokou at Christmas tree farms in Michigan. Leefers, A.L., M.R. Koelling, K. Potter Witter and L.M. James. 1986. Costs and Returns in Michigan Christmas Tree Production, 1986. MAES Research Report 492. East Lansing, Mich.: Michigan State University.
17 MSU is an affirmative-action, equal-opportunity employer. Michigan State University Extension programs and materials are MICHIGAN STATE open to all without regard to race, color, national origin, gender, gender identity, religion, age, height, weight, disability, political UNIVERSITY beliefs, sexual orientation, marital status, family status or veteran status. Issued in furtherance of MSU Extension work, acts of EXTENSION May 8 and June 30, 1914, in cooperation with the U.S. Department of Agriculture. Thomas G. Coon, Director, MSU Extension, East Lansing, MI 48824. This information is for educational purposes only. Reference to commercial products or trade names does not imply endorsement by MSU Extension or bias against those not mentioned.
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